10 December, 2021

LNG Market News - Japan

(Source: Nikkei Asia 29/Nov/2021)

Japanese power companies bet on 'zero-emission thermal'

Industry tries to buy time for fossil fuel plants as pressure to go green mounts

TOKYO -- At Japan's biggest coal-fired power plant, Hekinan, plans are underway to transform one of its generators to reduce its carbon dioxide emissions by 20% by 2024. The ultimate goal for the plant's operator, JERA, is to make its thermal plants carbon neutral by burning alternative fuels such as ammonia and hydrogen.

Doing so, the thinking goes, will allow these facilities to keep operating despite increasing environmental pressure to phase out fossil fuels.

JERA, a joint venture of Tokyo Electric Power Company and Chubu Electric Power, owns about half Japan's thermal power capacity for coal, oil and liquefied natural gas (LNG). The company is aiming for net-zero carbon emissions by 2050.

"[We] are looking to combine renewable energy and thermal power ... while making good use of existing assets," Ryoichi Ozaki, manager of JERA's technology development unit, told Nikkei Asia regarding the company's strategy.

Ammonia and hydrogen are seen as cleaner alternatives to coal because they do not emit carbon dioxide when burned. Using them as fuel for thermal power plants is part of the "zero-emission thermal" approach that has gained support of the Japanese government.

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"Converting existing thermal power generation into zero-emission power generation is a necessary path," Prime Minister Fumio Kishida said in his speech at the U.N. Climate Change Conference, COP26, in Glasgow, Scotland, in November. Japan has formally made ammonia and hydrogen part of its latest energy policy, and will launch projects worth $100 million to convert fossil fuel-fired power plants to zero-emission thermal power in Asia.

JERA may also take its zero-emission ambitions abroad. When it announced a $1.58 billion investment in Philippine utility Aboitiz Power in September, JERA President Satoshi Onoda said the company "will consider introducing zero-emission thermal [technologies] at Aboitiz Power's power plants in the future."

Other power companies and equipment manufacturers are also betting on the ammonia- or hydrogen-fueled thermal power as part of their green transitions.

J Power, a smaller domestic peer of JERA, plans to gradually phase out coal-fired power and achieve net-zero carbon emissions by 2050. Its approach includes a process known as coal gasification, which turns coal into a gas to extract the hydrogen locked inside, which is then used as fuel. It is also working to offset carbon emissions through carbon capture, utilization and storage (CCUS).

Like JERA, J Power, is feeling the heat on fossil fuels. Just this year, it cancelled a plan to build a new coal fired power plant in Yamaguchi Prefecture, in western Japan. And Japan's power plant operators are not the only ones facing a dilemma.

The Asia-Pacific region still mostly relies on fossil fuels for power, accounting for 79% of global coal demand, according to the International Energy Agency. At the same time, many governments, including those of Japan, South Korea and China, have pledged to reach carbon neutrality in the not-too-distant future.

That leaves companies in the region facing the risk that their hefty investments in fossil fuel power become stranded assets -- essentially worthless.

Carbon Tracker, a British think tank, estimates that listed operators of coal-fired power plants have $121 billion of assets globally at risk of becoming stranded, if the world reaches net-zero emissions by 2060. Of the plant operators, 90% are listed on Asian stock exchanges. Some of the most exposed companies include India's NTPC, Korea Electric Power and J-Power, which has about $4 billion of assets at risk, according to a recent Carbon Tracker report.

But there are questions over whether zero-emissions thermal is the answer to this problem. "We do not consider CCUS, nor any co-firing option [in the asset risk assessment, because] in the short term, they are not economically feasible," Lorenzo Sani, a power analyst with Carbon Tracker, told Nikkei Asia.

There are also technical hurdles to overcome. In the case of JERA's Hekinan trial, for example, the retrofitted boiler can burn a fuel mix of up to 20% ammonia. The technology to burn 100% ammonia is not yet available, according to Ozaki, who added that it would "very likely require major remodeling of the boilers" to do so.

The issue of cost is a particularly tricky one for power companies in Japan, experts say. "As a premise, the cost inevitably rises [to achieve] carbon neutrality," compared with conventional coal and gas combustion, said Ryosuke Torii, a partner at Boston Consulting Group.

Japan's industry ministry estimates that by 2030, the cost of building and operating new solar power plants could become cheaper than any other source of energy, at 8.2 yen (7 cents) per kilowatt-hour. The cost of coal and gas fired power are estimated at over 10 yen per kilowatt-hour, while onshore and offshore wind could range between 9.9 yen to 26.1 yen.

Even if renewable energy becomes cost competitive, however, Japan will still need to add a substantial amount of battery storage capacity or maintain a baseload of thermal power for times when the wind isn't blowing and the sun isn't shining, according to Torii. This could change the cost calculation.

"It is very possible that the cost of renewable energy will not decline as much in Japan [as in the U.S. or Europe]," he said.

"Batteries are also expensive, so zero-emission thermal could be cheaper, compared with them," he added.

Torii suggested that for some, relatively younger facilities, companies might be better off "extending their life by making investments to reduce carbon, such as mixed combustion, CCUS or better efficiency."

Equipment makers like Mitsubishi Heavy Industries are also turning to zero-emission thermal to guard against leaving its customers with devalued assets. MHI's coal-power clients are shifting to LNG, using the company's combined-cycle gas turbines. LNG is seen as a cleaner alternative to coal, but it is still a fossil fuel.

MHI's current gas turbine systems for LNG can be fueled by up to 10% hydrogen, which cuts their carbon dioxide emissions by the same amount.

While power plant operators and equipment makers continue to explore zero-emission thermal, environmental organizations often dismiss such technologies as CCUS and mixed combustion.

"It is risky to include these in any concrete plans because if they are not realized in time, these plans fall apart, when it will be too late to limit the warming of the Earth," said Eri Watanabe, a finance campaigner at 350.org Japan.

Greenpeace Japan has also criticized ammonia co-firing as "experimental [and] in its technological infancy." The environmental pressure group, in a recent report, said the technology is aimed merely at "extending the life of coal-fired power plants" and is "a bailout to thermal coal-based corporations and turbine manufacturers."

There are also debates over how the ammonia or hydrogen are obtained in the first place. Extracting ammonia and hydrogen from fossil fuels emits carbon dioxide, which has to be offset, while obtaining ammonia or hydrogen using renewable energy is costly.

"When it comes to 2050, it is necessary to consider nascent technologies, to a certain degree," said BCG's Torii. Still, companies should not bet on one scenario, "because that would be an inflexible plan."